Iran is an affluent country with a population size of 80 million people, a surface area of 1,648,195 km2 and a $60 billion FMCG market. Iran’s FMCG distribution market is dominated by small convenience stores called baghalis. These convenience stores average 48 m2 in commercial space. 91% of Iran’s FMCG distribution market is controlled by 175,000 baghalis (with an average store size of 48 m2). In such a lucrative market such as Iran, you may be surprised to know that there are no cash and carry businesses in the country. Baghalis procure their inventory in the following two ways:
1- they either make weekly visits to the wholesale bazaars and must visit 12-15 stores each time or
2- they are supplied by small and medium distributors that visit on a weekly basis.
From the manufacturing side of the FMCG market, factory owners are struggling with working capital and cashflow due to a lack of modern financing options which has led to manufacturing capacity being underutilized by 40%. These problems have arisen because:
1) interest rates are high;
2) Access to financing is limited;
3) All products are sold on credit and it takes 90-120 days for manufacturers to cash their invoices.
The reason why Iran’s FMCG industry is a prime candidate for disruption is precisely because such a large industry is operating with an antiquated and ineffective supply chain and financial system. By buying 7,000 SKUs of products and paying manufacturers in cash for purchases made, IRCC can solve cashflow problems of factory owners, reduce the price of which baghalis stock their inventories by at least 12%, and reduce the price paid by end users.